Mobile contracts influence affordability

Some phone companies, such as O2 with its Refresh Range, split customers’ mobile phone bills into paying for airtime, seen as a variable expense, and the handset considered the equivalent of a hire purchase agreement.

Allegedly the latter is treated as a loan by some lenders for affordability purposes and is therefore lowering borrowers’ income available to repay their mortgage.

But brokers said that usually mobile phone expense isn’t included in affordability assessments. Anecdotally both Kensington and Nationwide have been particularly stringent in their approach, said advisers.

Clayton Shipton, owner of CLS Financial Advice, said: “I had a case for first-time buyer with Kensington that wasn’t passing affordability assessments.

“On the credit bureau the phone company had split the bill into two: communication, so airtime costs, and a loan for the phone itself which was classed as a hire purchase.

“Kensington said it is classed as a loan and not a mobile so it’s factored into affordability calculations. In that case the buyer had to find an extra £5,000 to satisfy affordability criteria.”

He added: “A client had the same with Nationwide – they declined the application due to an undisclosed loan. Until someone at their head office says this is ridiculous this is going to keep happening. Before long people are going to start playing a game and not take out a phone contact.”

Jonathan Burridge, an independent mortgage broker based in East London, said: “First-time buyers who are already pressed on affordability are going to find their loans cut by £6,000.

“It’s an interesting stance and it wasn’t something I was aware of. Generally we ignore mobile phone contracts. It’s an attention to detail point which a broker could trip up on.”

He sympathised with first-time buyers, whose ability to pay from credit should supposedly help them by boosting their credit score.

He added: “When you talk to a first-time buyer we all say get credit because it shows a propensity to pay. In doing so you are telling your client that the outcome of your advice means they can’t borrow what they could borrow beforehand.”

A Kensington spokesman indicated that affordability calculations are conducted on a case-by-case basis, although he said a loan on a handset is unlikely to greatly impact affordability calculations.

He said: "We are aware that that it is becoming more prevalent for mobile phone providers to split out a customer's bill on a credit bureau to show the communications account and loan for the handset separately. If a broker is aware that that this is the case with their client, we would recommend advising Kensington on application.

“This way we will have the information to inform our individual assessment of the customer's circumstances."

Nationwide declined to comment.

A Halifax spokesperson said: “We don't specifically ask for the cost of a customer’s phone contract albeit as part of our affordability calculation, we do make assumptions regarding general costs of living.

“This ensures that we act responsibly when supporting our customers whilst maintaining a simple application process.”

Alan Cleary, managing director of Precise Mortgages, said it doesn’t matter whether the phone bill is split into airtime or the handset when the lender assesses affordability.

He said: “If on credit reference agency reports it says £25 a month that will count as a credit agreement for the mobile phone they’ve got and we don’t look at it any further than that.”

An O2 spokespersons said: “O2 Refresh separates the device and airtime cost and we need to do this to comply with the Consumer Credit Act. Customers need to sign a consumer credit agreement about the device payments as well as our standard airtime agreement.”